100% Mortgage financing.
Ideally, traditional mortgage lenders want new homebuyers to have a 20%
down payment when purchasing a new home. Thus, if purchasing a $200,000
home, you should be prepared to have $40,000 as a down payment.
Unfortunately, many people do not have this kind of money lying around.
For this matter, private mortgage insurance (PMI) was created as a
way for mortgage companies to recoup their money if a homeowner defaults
on the loan. There are various loans available to assist people with
down payments. In some instances, homeowners can obtain 100% financing,
and avoid PMI.
What is private mortgage insurance?
Because Americans are earning less money, and home prices are steadily
increasing, the majority of the population is unable to save the recommended
down payment of 20%. In order to make owning a home possible, mortgage
companies created a particular mortgage insurance, (PMI), for people
with less than 20% to put down on a home. This insurance protects
the lender if you default on the mortgage.
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How to avoid paying private mortgage insurance.
On average, PMI may increase your mortgage payment by $100 - sometimes less,
sometimes more. However, there are ways to avoid paying this additional
insurance. The obvious involves having at least 20% as a down payment. If
this is not an option, homeowner may agree to a higher interest rate. Another
tactic entails getting approved for 100% financing.
How does 100% mortgage financing work?
100% mortgage financing makes it possible to buy a home with no money
down. Also referred to as a piggyback loan or 80/20 mortgage loan, 100%
mortgage financing involves obtaining a first mortgage for 80% of the home
cost, and a second mortgage, or home equity loan, for 20% of the home cost.
Together, the first and second mortgage allows a home purchase with no money
down, and no private mortgage insurance.
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